PERG 4.11 Link between activities and the United Kingdom

Introduction

PERG 4.11.1GRP

Section 19 of the Act (The general prohibition) provides that the requirement to be authorised under the Act only applies in relation to regulated activities which are carried on 'in the United Kingdom'. In many cases, it will be quite straightforward to identify where an activity is carried on. But when there is a cross-border element, for example because a borrower is outside the United Kingdom or because some other element of the activity happens outside the United Kingdom, the question may arise as to where the activity is carried on. This section describes the legislation that is relevant to this question and gives the FCA's views on various scenarios.

PERG 4.11.2GRP

Even if a person concludes that he is not carrying on a regulated activity in the United Kingdom, he will need to ensure that he does not contravene other provisions of the Act that apply to unauthorised persons. These include the controls on financial promotion (section 21 (Financial promotion) of the Act) (see PERG 8 (Financial promotion and related activities)), and on giving the impression that a person is authorised (section 24 (False claims to be authorised or exempt)).

Legislative provisions: definition of "regulated `"

PERG 4.11.3GRP

A contract is only a regulated mortgage contract if the land is in the EEA4 (see PERG 4.4.5 G (Land in the EEA4)).

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Legislative provisions: section 418 of the Act

PERG 4.11.4GRP

Section 418 of the Act deals with the carrying on of regulated activities in the United Kingdom. It extends the meaning that 'carry on a regulated activity in the United Kingdom' would ordinarily have by setting out additional cases. The Act states that in these cases a person who is carrying on a regulated activity but would not otherwise be regarded as carrying on the activity in the United Kingdom is, for the purposes of the Act, to be regarded as carrying on the activity in the United Kingdom.

PERG 4.11.5GRP

For the purposes of regulated mortgage activities, sections 418(2), (4), (5), (5A) and (6) are relevant, as follows:

  1. (1)

    Section 418(2) refers to a case where a UK-based person carries on a regulated activity in another EEA State in the exercise of rights under a Single Market Directive. The only Single Market Directives which are relevant to mortgages are the CRD and the MCD.4

    4
  2. (2)

    Section 418(4) refers to the case where a UK-based person carries on a regulated activity and the day-to-day management of the activity is the responsibility of an establishment in the United Kingdom.

  3. (3)

    Section 418(5) refers to the case where a regulated activity is carried on by a person who is not based in the United Kingdom but is carried on from an establishment maintained by him in the United Kingdom.

  4. (4)

    Section 418(5A) refers to the case where an electronic commerce activity is carried on with or for a person in an EEA State from an establishment in the United Kingdom. See further PERG 4.11.21 G (E-Commerce Directive).

  5. (5)

    Section 418(6) makes it clear that for the purposes of sections 418(2) to (5A), it is irrelevant where the person with whom the activity is carried on is situated.

Legislative provisions: overseas persons exclusion

PERG 4.11.6GRP

The exclusions in article 72(5A) to (5F) of the Regulated Activities Order (Overseas persons) provide that an overseas person does not carry on the regulated activities of:

  1. (1)

    arranging (bringing about) or making arrangements with view to a regulated mortgage contract;

  2. (2)

    entering into a regulated mortgage contract; or

  3. (3)

    administering a regulated mortgage contract;

of the borrower (and each of them, if more than one) is an individual and is normally resident outside the United Kingdom.4 In the case of arranging a variation of, or administration of, an existing regulated mortgage contract, each borrower must be an individual who was normally resident outside the United Kingdom4 when he entered into the contract. In the FCA's view, normal residence for the purposes of this exclusion envisages physical presence with a degree if continuity, making allowance for occasional temporary absences (e.g. holiday). An overseas person under article 3 of the Regulated Activities Order (Interpretation) is a person who carries on certain regulated activities albeit not from a permanent place of business maintained by him in the United Kingdom.

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PERG 4.11.6AGRP

4The exclusion for overseas persons described in PERG 4.11.6 G does not apply where the overseas person is a mortgage intermediary whose home Member State is the United Kingdom. A mortgage intermediary is defined in PERG 4.10A.3 G.

PERG 4.11.7GRP

An overseas person might advise a person in the United Kingdom on an endowment assurance at the same time as advising on a regulated mortgage contract. If so, whilst the overseas person exclusion in article 72(5) will apply in relation to the advice on the endowment assurance, there will be no 'overseas persons exclusion' for the advice on the regulated mortgage contract.

Territorial scenarios: general

PERG 4.11.8GRP

The FCA's view of the effect of the Act and Regulated Activities Order in various territorial scenarios is set out in the remainder of this section. In those scenarios:

  1. (1)

    the term "service provider" is used to describe a person carrying on any of the regulated mortgage activities;

  2. (2)

    the term "borrower" refers to a borrower who is an individual and not a trustee; the position of a borrower acting as a trustee is not considered; and

  3. (3)

    it is assumed that the activity is not an electronic commerce activity (as to which, see PERG 4.11.21 G (E-Commerce Directive)).

PERG 4.11.9 G contains a simplified tabular summary of those views, which should be used only in conjunction with the more detailed analysis.

PERG 4.11.9GRP

Simplified summary of the territorial scope of the regulated mortgage activities, to be read in conjunction with the rest of this section.

This table belongs to PERG 4.11.8 G

4Regulated activities other than advice

Location of establishment of service provider:

Location of land:

Individual borrower resident and located:

UK or non-UK person: Establishment in the UK

in the UK

in another EEA State

outside the EEA

land in the UK

Yes

Yes

Yes

land in another EEA State

Yes

Yes

Yes

UK person: Establishment in another EEA State or in a country outside the EEA

in the UK

in another EEA State

outside the EEA

land in the UK

Yes

Yes

Yes

land in another EEA State (Note 1)

No

No

No

Non-UK person: Establishment in another EEA State or in a country outside the EEA

in the UK

in another EEA State

outside the EEA

land in the UK

Yes

No

No

land in another EEA State

No

No

No

Yes = authorisation or exemption required

No = authorisation or exemption not required

Note 1: If the service provider is a UK firm operating from an office in another EEA State in the exercise of rights under a Single Market Directive, the activities will be treated as taking place in the United Kingdom and the firm will need to make sure that its permission covers the regulated mortgage activities it is carrying out. See PERG 4.11.5G (1).

4The regulated activity of advice

Location of establishment of service provider:

Location of land:

Individual borrower resident and located:

UK or non-UK person: Establishment in the UK

in the UK

in another EEA State

outside the EEA

land in the UK

Yes

Yes

Yes

land in another EEA State

Yes

Yes

Yes

UK person: Establishment in another EEA State or in a country outside the EEA

in the UK

in another EEA State

outside the EEA

land in the UK

Yes

No

No

land in another EEA State (Note 1)

Yes

No

No

Non-UK person: Establishment in another EEA State or in a country outside the EEA

in the UK

in another EEA State

outside the EEA

land in the UK

Yes

No

No

land in another EEA State

Yes

No

No

Yes = authorisation or exemption required

No = authorisation or exemption not required

Note 1: If the service provider is a UK firm operating from an office in another EEA State in the exercise of rights under a Single Market Directive, the activities will be treated as taking place in the United Kingdom and the firm will need to make sure that its permission covers the regulated mortgage activities it is carrying out. See PERG 4.11.5G (1).

Service provider in the United Kingdom

PERG 4.11.10GRP

Where a person is carrying on any of the regulated mortgage activities from an establishment maintained by him in the United Kingdom, that person will be 'carrying on a regulated activity in the United Kingdom'. The location and residence of the borrower is irrelevant. That is the practical effect of sections 418(4), (5) and (6) of the Act.

PERG 4.11.11GRP

There may also be situations where a lender, who does not maintain an establishment in the United Kingdom, provides services in the United Kingdom. For instance, a lender might attend a property exhibition in the United Kingdom at which he sets up a loan with a borrower. A lender might also attend the offices of its UK-based lawyers, or appoint them as its agent, to enter into a contract with a borrower. In these cases, the overseas lender would only be carrying on a regulated activity in the United Kingdom if he subsequently enters into a regulated mortgage contract with a UK resident. This is because arrangements made with borrowers at the exhibition would be subject to the exclusion in article 28 of the Regulated Activities Order (Arranging transactions to which the arranger is a party) (see PERG 4.5.7 G1). As regards entering into a regulated mortgage contract with a borrower resident overseas, this would be subject to the overseas persons exclusion.

1

Service provider overseas: general

PERG 4.11.12GRP

If a service provider is overseas, the question of whether that person is carrying on a regulated activity in the United Kingdom will depend upon:

  1. (1)

    the type of regulated activity being carried on;

  2. (2)

    section 418 of the Act;

  3. (3)

    the residence and location of the borrower;

  4. (4)

    the application of the overseas persons exclusion in article 72(5A) to (5F) of the Regulated Activities Order; and

  5. (5)

    whether the service provider is carrying on an electronic commerce activity.

The factors in (1), (3) and (4) are considered in relation to each regulated activity in PERG 4.11.13 G to PERG 4.11.20 G. The factor in (5) is considered in PERG 4.11.21 G.

PERG 4.11.12AGRP

4If the service provider is a UK firm exercising its rights under a Single Market Directive by providing services from another EEA State, section 418 of the Act means that the services are treated as being carried on in the United Kingdom. This factor is not covered further in the remainder of this section.

Service provider overseas: arranging regulated mortgage contracts

PERG 4.11.13GRP

When a person is arranging (bringing about) regulated mortgage contracts or making arrangements with a view to regulated mortgage contracts from overseas, the question of whether he will be carrying on regulated activities in the United Kingdom will depend on the relevant circumstances. In the FCA's view, factors to consider include:

  1. (1)

    the territorial limitation in the definition of regulated mortgage contract so that regulation only applies if the land is in the EEA;4

    4
  2. (2)

    the overseas persons exclusion in article 72(5A) to (5C) of the Regulated Activities Order; and

  3. (3)

    where the arrangements are in fact made.

PERG 4.11.14GRP

In the FCA's view:

  1. (1)

    if the borrower is normally resident in the United Kingdom and the land is in the United Kingdom4, the clear territorial limitation in the definition of regulated mortgage contract carries most weight in determining where regulation should apply; it is likely that the arranger will be carrying on regulated activities in the United Kingdom;

  2. (2)

    if the borrower is normally resident overseas, the arrangements are excluded by the overseas persons exclusion if the lender is an overseas person.4

In the case of arranging (bringing about) regulated mortgage contracts, the normal residence of the borrower at the time the arrangements are made is the determining factor, except in the case of arranging (bringing about) a variation of a contract, in which case it is the normal residence of the borrower at the time that the regulated mortgage contract was entered into. In the case of making arrangements with a view to regulated mortgage contracts, the normal residence of the borrower at the time he participates in the arrangements is the determining factor.

Service provider overseas: advising on regulated mortgage contracts

PERG 4.11.15GRP

In the FCA's view, advising on regulated mortgage contracts is carried on where the borrower receives the advice. Accordingly:

  1. (1)

    if the borrower is located in the United Kingdom, a person advising that borrower on regulated mortgage contracts is carrying on a regulated activity in the United Kingdom; but

  2. (2)

    if the service provider and borrower are both located overseas, the regulated activity is not carried on in the United Kingdom.

Service provider overseas: entering into a regulated mortgage contract

PERG 4.11.16GRP

The effect of article 72(5D) of the Regulated Activities Order is that an overseas person does not carry on the regulated activity of entering into a regulated mortgage contract if the borrower is resident overseas at the time the contract is entered into.

PERG 4.11.17GRP

In the FCA's view, in circumstances other than those excluded by article 72(5D) of the Regulated Activities Order, the need for an overseas lender to be authorised or to have an exemption will depend on the location of the land.4 This is because of:

4
  1. (1)

    the territorial limitation in the definition of regulated mortgage contract so that regulation applies only if the land is in the EEA;4

    4
  2. (2)

    the general principle and practice that contracts relating to land are usually governed by the law of the place where the land is situated; and4

  3. (3)

    practical issues of conveyancing; a lender is likely to use the services of a lawyer4 or licensed conveyancer operating from the United Kingdom or the other EEA State in question4, who enters into the regulated mortgage contract as agent for the lender in the United Kingdom or the other EEA State in question4; and

    4
  4. (4)

    the existence of the overseas persons exclusion in article 72(5D).

Service provider overseas: administering a regulated mortgage contract

PERG 4.11.18GRP

The effect of article 72(5E) and (5F) of the Regulated Activities Order is that an overseas person who administers a regulated mortgage contract, where the borrower was resident overseas at the time that the contract was entered into, does not carry on the regulated activity of administering a regulated mortgage contract.

PERG 4.11.19GRP

In the FCA's view, in circumstances other than those excluded by article 72(5E) of the Regulated Activities Order, the need for an overseas administrator to be authorised or to have an exemption will depend on the location of the land.4 This is because:

4
  1. (1)

    the territorial limitation in the definition of regulated mortgage contract means that regulation applies only if the land is in the EEA;4

    4
  2. (2)

    when administrators notify borrowers resident in the United Kingdom or the other EEA State in question4 of matters pursuant to a regulated mortgage contract, such notification is likely to be carried on in the United Kingdom or the other EEA State in question4;

  3. (3)

    the steps involved in collecting or recovering payments will generally include giving notice to the borrower at his address in the United Kingdom or the other EEA State in question;4

    4
  4. (4)

    legal action to recover sums due under regulated mortgage contracts will in many cases require proceedings before courts in the United Kingdom or the other EEA State in question4, either to enforce regulated mortgage contracts subject to the jurisdiction of these courts or to register and enforce judgements obtained elsewhere, in the case of contracts subject to non-UK jurisdictions; and

  5. (5)

    of the existence of the exclusion in article 72(5E) (Overseas persons).

Service provider: agreeing to carry on a regulated activity

PERG 4.11.20GRP

In most cases, there will be no preliminary agreement to enter into a regulated mortgage contract in advance of entering into the contract itself. Moreover, the exclusions relevant to a regulated activity are taken into account to determine whether a person is agreeing to carry on that regulated activity. So, for example, agreeing to arrange regulated mortgage contracts in cases where borrower and service provider are overseas, would not be regulated activities because the activities themselves are outside the scope of regulation. Otherwise, in the FCA's view, the issue of where agreeing to carry on a regulated activity takes place will depend on such factors as a contractual analysis of where the agreement is entered into, including where appropriate the general position at common law (see, for example, PERG 4.11.17 G).

E-Commerce Directive

PERG 4.11.21GRP

The E-Commerce Directive removes restrictions on the cross-border provision of services by electronic means, introducing a country of origin approach to regulation. This requires EEA States to impose their requirements on the outward provision of such services and to lift them from inward providers. The E-Commerce Directive contains only a few exceptions, termed derogations, from this principle. The E-Commerce Directive defines an e-commerce service (termed an information society service) as any service, normally provided for remuneration, at a distance, by electronic means, and at the individual request of the recipient of the service. So, for example, it includes services provided over the internet, by solicited e-mail, and interactive digital television.

2

Distance marketing directive

PERG 4.11.22GRP

The FCA will be responsible for implementing the Distance Marketing Directive for those firms and activities it regulates. The FCA and the Treasury agree that the Distance Marketing Directive is intended to operate on a country of origin basis, except where a firm is marketing into the UK from an establishment in an EEA State which has not implemented the Directive.